Safer Haven for Foreign Money
Gulf-based investors are mostly focused on the top 15 US markets, according to Sweeney. “And while they typically prefer the East Coast, the West Coast markets of San Francisco, Seattle and Los Angeles are of high interest as well.” And, on a more selective basis, he adds, they will also consider investments in Southern California markets like Orange County and San Diego.
“These players are very focused on income with many interested in single-tenant, long-term net leased assets in very strong locations. A strong credit tenant is extremely important,” says Sweeney. “Over the past 12 months, we’ve also seen a large increase in US real estate interest from Islamic investment houses with many considering US investment for the first time. These groups have been able to work through some of their legacy issues and they are now in search for on-going, predictable income.”
The Association of Foreign Investors in Real Estate came out with its “Emerging Market” survey in January, which found that of the top five global cities for investment preferred by the members, four are in the US. This is the first time this has occurred since the question was first asked in 2001.
“The strong endorsement of both San Francisco and Houston by our members in this year’s survey directly reflects the propensity for real estate investment to follow jobs—in this case, technology and energy, which are thought to be among the top drivers of the next economic wave,” says James A. Fetgatter, chief executive of AFIRE. “As other economic drivers emerge, it will not be surprising to see investors seek opportunities beyond the traditional New York and Washington, DC markets.”
According to Gary Mozer, Los Angeles-based principal and managing director of George Smith Partners, it’s not just foreign investment that is hot, but investment opportunities in general are expanding. “The relative value of real estate is climbing, especially when compared to other asset classes such as bonds, stocks and operating companies,” he says. “As a result, the risk-adjusted value of commercial real estate is now attracting many new equity investors.”
In today’s market, foreign capital, family offices and high-net worth investors are competing with the opportunity/hedge funds, pension fund advisors and big institutions in an effort to capitalize on the increase in potential investments, Mozer explains.
“A year ago, most investors were only interested in new apartments, grocery-anchored retail properties, and class A office and industrial product located within the top six gateway markets in the US,” says Mozer. In contrast, he says, over the past six months, his firm alone has placed more than $100 million of equity for uses such as apartment development, land to be re-entitled for development and the acquisition and repositioning of existing apartment, industrial, retail and office product.
On the retail side, Alvin Mansour, SVP of investments and senior director of the national retail group and net leased properties group at Marcus & Millichap Real Estate Investment Services, says that foreign buyers have come into play in the investment arena across the nation.
“Considering the instability in the global markets, we have recently sold some shopping centers, single tenant retail and office buildings to overseas buyers,” he says. “We have also seen an uptick in interest from Latin American buyers targeting the US for real estate investment.”
For example, Mansour recently sold three shopping centers located in Arizona and Illinois to a Dubai-based client. In addition, Latin funds, he says, have been targeting retail investments in South Florida and border towns in Texas and California—places with heavy Hispanic populations.
“We’ve also sold some high-profile single-tenant retail properties—drugstores and banks—to Israeli buyers in locations like Houston, Las Vegas and Miami,” Mansour tells Forum.
And on the hotel side, in a recent GlobeSt.com article, Lauro Ferroni, VP of research for JLL, said that the Los Angeles hotel market—which is performing strongly and posted double-digit RevPAR growth 2012—is attracting foreign interest as well. “The Los Angeles market attracts significant interest from Asia-based investors.”
Those buyers, Ferroni adds, “predominantly pursue assets unencumbered by brand and/or independent hotels.”
Bill Stadler, senior managing director for HFF, also noted in a recent GlobeSt.com article that on the investment-sales side, there continues to be a strong appetite for West Coast hotels from both domestic investors and Asian buyers. “There are more Chinese investment groups looking for assets here in California,” he said. “For instance, an Asian group acquired Hilton Ontario. They’re very sophisticated buyers—sales are fairly disciplined in terms of pricing.”